An education credit is a method of reducing some education costs by offering offsets of costs on taxes. A credit can be directly subtracted from taxes owed, which is the more standard definition, or it may lower the amount of income that is considered taxable. Each country, state or municipality offering these credits determines exactly who qualifies and on what basis, and most of these tax lowering methods won’t apply to all people getting an education. Another definition of an education credit is when it refers to units or hours earned during studies, but this has little to do with finance.
In places like the US, the federal government offers several types of education credit, which some students or their parents might be able to claim on tax returns. Most of these apply to tuition expenses of undergraduate college students in their first four years of school. There are a few credits, like the Lifetime Learning Credit, that can be applied to graduate education expenses, but these are limited to people living in certain geographic areas. The majority of true credits offered, which directly reduce tax or may even be partially refundable, can only be taken by a percentage of students or parents.
On the other hand, should people not qualify for any of the most popular credits, they still are usually able to take a deduction of college expenses up to about $4000 US Dollars (USD) per year, per student, though specific amount is subject to change. This deduction lowers taxable income amount, but it doesn’t have as much impact on tax reduction as an education credit. It can still help reduce taxes slightly. Similarly, there are some college savings programs that may lower taxable income and any funds taken out in students loans aren’t subject to taxes. Student loan interest can also be deducted when loans are in repayment.
A few regions offer education credit programs for school expenses at the K-12 level, and central governments may have a few tax deductions for education costs for kids up to the age of 18. These credits are more controversial because parents who pay private tuition usually take them. Reducing tax amounts for people who elect not to participate in public school systems cuts funds for public education, and can set up an environment where those with privilege are better able to educate their children and are rewarded financially for opting out of public school. Though helpful for those people who do send their children to private schools, such deductions are criticized as being similar to a voucher system that disadvantages children in public school settings by reducing the amount of money collected to educate them.
